EU leaders scramble to agree on economic response to COVID-19

As EU leaders scramble to contain the fallout from the frugal four’s refusal to back ‘coronabonds’, policymakers weigh up all available options for economic stimulus.

Following last week’s European Council summit, EU ambassadors on Monday adopted two legislative measures to quickly make available €37 billion from the EU-budget for the European Commission’s new “Coronavirus Response Investment Initiative”. The initiative provides financing for Member States to support their healthcare systems, SMEs, short-term working schemes and other community-based services. 

However, as Austria and Spain report their worst unemployment figures since records began, EU leaders continue to scramble for short and long-term solutions to protect workers and create the right economic stimulus measures, with European Council President Charles Michel commenting on Tuesday that all institutions were “exploring different paths to respond to the socio-economic consequences of the pandemic.”

While EU finance ministers, under the leadership of Eurogroup President Mário Centeno, seek a solution ahead of their next meeting on April 7, the two camps continue to be divided between those calling for a common debt sharing mechanism, i.e. “coronabonds”, and those supporting the already available European Stability Mechanism (ESM) to provide crucial funding to crisis hit national economies.

In addition, the European Commission President von der Leyen this week proposed developing a revised, beefed-up EU-budget proposal to finance the EU’s economic recovery. Under the plan, the next 7-year MFF would be heavily focused on an immediate and large-scale economic support package.

Furthermore, the Commission, this week, has also proposed introducing an EU-wide unemployment reinsurance scheme (SURE) to support and top up Member States’ national unemployment benefits. According to the Commission, the temporary instrument could be worth up to €100 billion and would be designed to help protect jobs and workers through an EU-level joint financial assistance scheme. The Commission argues that SURE, if agreed and implemented quickly, would provide employers with enough financial security to prevent them from having to put their workers into temporary unemployment.

Yet, with EU leaders unable to bridge deep ideological divisions on funding either of the above stimulus measures without seriously considering alternatives, time for formulating a coordinated and sustainable European economic recovery is running out.